What Is a Crypto Commodity?

Crypto-commodity is a general term used to describe a tradable or fungible asset that may represent a commodity, utility, or a contract in the real- or virtual-world through exclusive tokens on a blockchain network.

Understanding Crypto Commodities

A quick dive into the evolutionary history of cryptocurrency platforms is helpful in understanding the concept of crypto-commodities.

As the Bitcoin network evolved, it gained popularity for its ease of payment processing and its decentralized nature. Technology stalwarts were quick to realize that blockchain networks could be used for more than simple online payments. This is how Ethereum emerged, a unique smart contract-based crypto-commodity system.

Although Ethereum works as a standard blockchain network and has its own virtual currency token (ETH), it offers a lot more functionality than the bitcoin network. On Ethereum, anyone can create their own digital tokens, which are easily tradable and can have valuations independent from ETH.

These digitized tokens can be used to represent any kind of virtual or real-world asset, such as in-game objects, rewards points, or real-world commodities.

For instance, an app developer could use a specific type of token to pay for platform hosting, a user could pay a different type of token to watch blockchain-based online media content, and another token could be used for online betting.

Essentially, any blockchain-based platform that allows representation of a tradable and fungible asset through the use of unique tokens can be described as a crypto-commodity ecosystem. The rules for owning and transacting with these assets are enforced through programmable code in the form of smart contracts and decentralized apps.

Other blockchain-based platforms that support crypto-commodity trading include NEO, Cardano, and QTUM.

Examples of Crypto Commodities

Most crypto-commodities refer to tokens used to access online services. For example, the Brave browser has its own built-in cryptocurrency, which is used to pay for advertisements and content creation. Many cryptocurrency exchanges have their own digital tokens, which are used to pay trading fees and other expenses of using the platform.

Virtual tokens can also be used to represent real-world commodities. The Digix Gold Token (DGX) is a digitally tradeable form of gold, in which each token represents one gram of the precious metal, backed by gold bars in a secure vault. However, unlike regular gold, the tokens are weightless, easily divisible, and nearly impossible to steal. There have also been efforts to tokenize crude oil, electricity, and even bananas.

Cryptocurrencies Traded as Commodities

The term "crypto-commodity" can also refer to cryptocurrencies that are legally regulated and traded as commodities, as opposed to securities. Both bitcoin and ether, the cryptocurrency of the Ethereum network, are widely considered to be commodities by authorities at the Commodity Futures Trading Commission and the Securities and Exchanges Commission.

This distinction is important because sales of securities are closely regulated by the U.S. and other national governments. Because Bitcoin and Ether are not considered securities, they can be freely traded on traditional asset markets, as well as cryptocurrency exchanges. Both the Chicago Mercantile Exchange and the Cboe Options Exchange have announced cryptocurrency-based products, which can be readily traded alongside more traditional commodities like gold and corn.